It empowers the state governments to go for market borrowings to fulfill their plan expenditure without prior permission from the Central Government (provided they have enacted their respective Fiscal Responsibility Acts).
- This has boosted the participatory planning in the country by guaranteeing greater autonomous plan participation from the states.
HIGHLIGHTS OF THE FRBMA, 2003
Government of India (GoI) to take measures to reduce fiscal and revenue deficit so as to eliminate revenue deficit by 31 March, 2008 (which was revised by the UPA Government to March 31, 2009) and thereafter build up adequate revenue surplus.
Rules to be made under the Act to specify annual targets for the reduction of fiscal deficit (FD) and revenue deficit (RD) contingent liabilities and total liabilities (RD to be cut by 0.5 percent per annum and FD by 0.3 percent per annum).
FD and RD may exceed the targets only on the grounds such as national security, calamity or exceptional grounds.
GoI not to borrow from RBI except by Ways and Means Advances (WMAs).
RBI not to subscribe to the primary issue of the GoI securities from 2006–07 (it means that these government bonds/papers will become market—based instruments to raise long-term funds by the government).
Steps to be taken to ensure greater transparency in fiscal operations.
o Fiscal Policy Strategy Statement (FPSS)
o Medium Term Fiscal Policy Statement (MTFPS)
o Macroeconomic Framework Statement (MFS)
o The Finance Minister to make a quarterly review of trends in receipts and expenditure in relation to the Budget and place the review before the Parliament.